AIG’s former CEO Maurice “Hank” Greenberg has indicated that he is ready to testify regarding AIG’s transaction with Berkshire Hathaway’s General Re group in 2000. The transaction in question was orchestrated by General Re in a manner that allowed AIG to inflate its loss reserves by $500 million. Mr. Greenberg was never charged with a crime but prosecutors identified him as an unindicted co-conspirator and he refused to testify citing his fifth amendment right against self incrimination. Now that the statute of limitations has apparently expired, Mr. Greenberg is willing to provide testimony in the case.
The AIG situation has been a headache for General Re and Berkshire Hathaway over the past decade. On January 20, General Re finally reached a settlement with the federal government which will allow the firm to avoid prosecution for its role in the accounting fraud. General Re paid $92 million in total fines as part of the settlement. Several General Re executives were implicated in the sham transaction and the entire episode threatened to tarnish Berkshire Hathaway’s reputation. (The AIG matter is not the only trouble Berkshire ran into after the 1998 General Re acquisition. We provide extensive detail regarding Berkshire’s troubled history with General Re in the Berkshire Hathaway 2010 Briefing Book.)
Warren Buffett was never accused of any wrongdoing in the case and willingly spoke to prosecutors regarding his knowledge of the situation. When the $92 million settlement was announced, Mr. Buffett made the following statement regarding the matter:
“We did something wrong and we paid the price,” Buffett said during an interview on the Fox Business Network. “It shouldn’t have been done, and there’s nothing inappropriate about the fine we paid, so I have no problem with it.”
So on one hand we have Mr. Buffett who willingly cooperated with prosecutors and has taken responsibility for the actions of one of his companies and on the other hand we have Mr. Greenberg who refused to testify years ago and is only coming forward now that the statute of limitations has expired.
Mr. Greenberg had every right to exercise his fifth amendment protection against self incrimination, but Mr. Buffett has clearly set the better example in this case.
Disclosure: The author owns shares of Berkshire Hathaway and is the author of The Rational Walk’s Berkshire Hathaway 2010 Briefing Book which provides a detailed analysis of the company along with estimates of intrinsic value.